Supreme Court to hear DSL antitrust case; FCC, DoJ at odds

The US Supreme Court has decided to hear an appeal of a case that may define …

The awkward compromise that once formed the foundation of the US broadband policy will make a return trip to the Supreme Court this fall, as the Justices have accepted a case that will allow them to further refine the role that antitrust law plays in the semiregulated market for DSL access. The case arises out of a suit filed by an ISP against what was SBC California, which has made its way through appeals in the 9th Circuit. The legal maneuvering prior to the Supreme Court's acceptance of the case saw the Department of Justice facing off against the Federal Communications Commission in a demonstration of how awkward the politics of the US broadband market have become.

The case stems from the Telecommunications Act of 1996, as implemented by the FCC, attempted to open up the "last mile" of phone lines to competition. The implementation left phone companies in the awkward position of leasing their wiring to companies that competed with the telcos' own ISP services. To the surprise of no one, the behavior of the phone companies was less than admirable, as they used high wholesale access prices and various forms of poor service to dissuade customers from choosing any service other than their own.

This pattern of behavior produced a number of lawsuits, one of which has already reached the Supreme Court. In Verizon v. Trinko (PDF), the court ruled that the FCC's intervention in the market obviated some aspects of antitrust law. In the absence of the regulatory compulsion, the court ruled, Verizon really had no interest in selling broadband access to other ISPs. Since they were forced into the wholesale broadband market, that regulatory force was the controlling principle, freeing Verizon from antitrust concerns regarding its wholesale service.

The dual role of major telcos as both wholesale and retail providers, however, was not addressed by this case, and two separate district court decisions have reached opposite answers about whether their behavior in retail markets might still run afoul of antitrust law. The case (PDF) the Supreme Court accepted arises from the gap between wholesale and retail prices. LinkLine attempted to enter the broadband market in California, and found that the wholesale prices offered by SBC California (and its subsidiaries and corporate descendants) did not allow the company to offer a service that could compete on price with SBC's own retail DSL offerings. They sued on antitrust grounds, alleging a price squeeze, among other things.

The 9th Circuit, on an appeal, has ruled that case can proceed. Even assuming that wholesale prices can't be contested on antitrust grounds, the court held that they could be used as a grounds for consideration when evaluating retail prices on antitrust grounds, and sent the case back for trial. The FCC agreed, and filed an amicus brief asking the Supreme Court skip the case calling the 9th circuit's analysis, "unquestionably correct." The Commission also argued that any review that took place would be more informed if the case proceeded and built up a record of evidence for analysis.

It's not entirely clear why the FCC is interested in seeing the 9th Circuit's decision upheld. The Commission's intervention in the market was minimized when it dropped its requirement that incumbent telcos offer broadband wholesale. Their decision also runs counter to the wishes of the Bush Administration, which has generally avoided regulation and has not restricted businesses on antitrust grounds. As such, the Department of Justice found itself on the opposite side of the law, arguing that the court should throw out the 9th Circuit's decision. In the DoJ's view, LinkLine has done nothing to allege predatory pricing and harm to competition, so there is nothing behind the company's suit in antitrust terms.

Which ever way the Supreme Court ultimately rules, this case is unlikely to open up the US broadband market to competition. Whatever abuses happened in the past, the FCC has since focused on a policy of competition between classes of broadband service, and accepted de facto monopolies within a class, as is commonly the case with DSL or cable. In all probability, the ramifications of the Supreme Court's decision will be felt outside of the broadband market.